Home Price Gains Seen Cooling

The Data & Analytics division of Black Knight, Inc. (NYSE: BKI) on Monday released its latest Mortgage Monitor Report, based on data as of the end of June 2018, which shows a slowdown in the rate of home price appreciation seen from March through May 2018.

“In May — typically one of the strongest months of the year for home price growth — every state in the nation saw home prices increase,” said Ben Graboske, executive vice president of Black Knight’s Data & Analytics division. “However, the average monthly gain in value of less than 1% was the lowest for any May in the last four years. In addition, the annual rate of appreciation declined each month from March through May, the first three-month slowdown in almost four years. Thirty-two states, as well as 33 of the 50 largest metropolitan areas, have experienced slowdowns in appreciation over the same period. All that said, the annual rate of home price growth is still historically high at 6.3%, some 2.5%age points above long-term norms. For more than six years, we’ve been riding a wave of home price appreciation above the 25-year average. The question now is whether tightening affordability will end that streak and if more deceleration is on the horizon.

He continued, “On that front, the recent cooling of home price gains and slight reprieve in rising interest rates have combined to stabilize affordability in recent months. As rates have ticked down from 4.66% in late May to 4.52% in mid-July, the monthly principal and interest payment to purchase the average home has only increased by $4 per month — significantly less compared to the $138-per-month increase we saw over the first five months of 2018. Still, the $1,213 in principal and interest per month needed to buy the average home remains near a post-recession high. While that represents a nearly $500 per month increase from the bottom of the market in 2012, it’s important to keep in mind that it’s still roughly 13% less than was required back in 2006.”

This report also looked at how rising short-term interest rates have impacted holders of outstanding adjustable-rate mortgages (ARMs), finding that 1.7 million such borrowers have seen their monthly mortgage payments increase by an average of $70 over the past 12 months. This subset of borrowers had been the beneficiary of downward reductions in their rates and payments following the financial crisis, but that’s no longer the case. Increases to both the LIBOR and constant maturity Treasury rates have resulted in the average rate on a post-reset ARM rising by more than .5% over the past 12 months and nearly .75% over the past two years, pushing the average post-reset ARM interest rate to more than 4.5%. While this has not led to any measurable increase in post-reset ARM delinquencies, ARM loans are now prepaying at a 70% higher rate than their fixed-rate counterparts over the past 12 months. This is a trend that may continue as an estimated 1 million borrowers would face an additional payment increase upon their next reset if index values were to hold steady at today’s rates.

As was reported in Black Knight’s most recent First Look news release, other key results include: